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What Is a Short Sale in Real Estate?

Posted on Wednesday, December 13, 2017

When you are talking about real estate, what is a short sale? It is not the sale of a short home or on a short deadline; it is the sale of a home that "occurs when a property is sold at a price lower than the amount the homeowner owes on the mortgage," according to Freddie Mac. Should you purchase a home in a short sale?

Why Short Sales Happen

Short sales happen for many reasons, but generally, they happen because a homeowner is short on funds. The owner chooses to sell the home. The homeowner may need to sell the home due to a divorce, job loss, or other life change. If the house has depreciated in value over the years, then the sale of the house may not cover the amount that the homeowner owes on the mortgage. The mortgage lender agrees to the lower or short payoff. Houses can depreciate over time if the market in the area falls or if there is damage to the house that makes it a less valuable asset than when the homeowner first purchased the property.

Homes offered in short sales may be in poorer shape than other homes.

Should You Buy at a Short Sale?

A short sale adds some complexity to a regular home sale. What makes a short sale different?

  • The mortgage lender must approve since the lender will receive fewer funds than originally anticipated. The lender could agree to this is the owner cannot make monthly mortgage payments, for example.
  • The process takes longer because of this extra step, and this could cause problems for those who are on a tight deadline to buy a home.
  • If the owners are in financial distress, the house may not be in good condition. You will need to purchase it as is since the owners will not have the financial wiggle room to make changes.
  • You will likely need to contribute to costs such as the inspection fee since the owners will not be able to pay for these.

Is It Less Expensive to Buy a Short Sale Home?

If you are looking for an excellent deal on a property, buying a short sale home could be suggested as a possibility. However, a short sale is not necessarily a great deal. The home could have a lower price than others in the neighborhood, but it could also be in poor shape. The home could be lower than the owner's original purchase price, but if properties in the neighborhood have depreciated, than any of the surrounding homes could also be less expensive. Finally, you will likely end up paying more for those important steps such as:

  • Pest inspections
  • The home inspection
  • Roof certifications
  • Required maintenance
  • Transfer taxes, if the lender refuses to pay
  • Fees for the real estate agent

A short sale is a home purchase option, but it is not necessarily an inexpensive one. Are you considering whether or not you want to buy a home in a situation such as a foreclosure or a short sale? At Open for Homes, we are here to answer your questions about home purchases. Talk with us today and visit the blog at Open For Homes.

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